The Market

4th Quarter 2014

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THE BIG PICTURE

The S&P 500's long-term average annual total return has been approximately +10%, making 2014 an exceptionally strong year by historical standards. A steady flow of strengthening economic data trumped these worries, driving stocks higher over the course of the year.

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U.S. STOCKS

Though many cable TV pundits had predicted that lagging small- and mid-caps signaled that the broader market would head lower, this never happened. Small- and mid-caps substantially outperformed large-caps in the quarter ended 12/31/14. This was a dramatic turnabout from 2014's first three quarters.

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FOREIGN VS. U.S. STOCKS
The U.S. stock market's strength stood out for yet another quarter. America has been an engine of world growth while most other major foreign economies lagged or depreciated. China's stock market also had a good quarter, but the Eurozone, Asia and Emerging markets across the world lost value.

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LARGE-CAP U.S. STOCKS BY INDUSTRY
Utilities' 24% gain was a big surprise. Wall Street's "top" strategists, in a December 2013 Barron's story, had predicted health care stocks would rise in line with the S&P 500. Strategists did get one prediction right: tech stocks outperformed. But it was the fifth year in a row they predicted tech would lead.

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ASSET CLASSES±

Five years ago, oil stocks were high-flyers. Last quarter, they tumbled. Who could have know five years ago that the shale revolution was coming to America or that Saudi Arabia would open its oil spigot at the end of 2014 for its own geopolitical and economic reasons? This chart makes a good case for diversifying.

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S&P 500 INDEX VS. EARNINGS¥
Red squares show expected earnings on the S&P 500 index of blue-chip stocks, based on a 12/25/2014 forecast of Wall Street analysts, for $127 per share in 2014 and $142 in 2015. Unless sudden, surprising bad news breaks, the trajectory of earnings growth is poised to propel stocks higher.

Past performance does not indicate future results. ± Indices and ETFs representing asset classes are unmanaged and not recommendations for any specific investment. Foreign investing involves special risks, including political or economic instability and currency fluctuation. Bonds offer a fixed rate of return while stocks fluctuate. ¥ Estimated bottom-up S&P 500 earnings per share as of October 2, 2014 was $118.28 for 2014 and $132.91 for 2015. Sources: Yardeni Research, Inc. and Thomson Reuters I/B/E/S survey of consensus estimates. Standard and Poor's for index price data through October 7, 2014; and actual earnings data through June 2014.

This article was written by a professional financial journalist for Profile Investment Services and is not intended as legal or investment advice.

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Information contained herein is based on reports, communications, or other independendent sources believed to be reliable, however, such information has not been verified by us, and neither Profile Investments nor Portfolio Resources Group make any representation as to its accuracy or completeness.